Better bank tax

Toledo Blade - April 23, 2012


Gov. John Kasich’s budget package includes a proposal for a new tax on Ohio financial institutions. It would replace current state levies on banks, savings institutions, securities and mortgage brokers, and payday lenders.

State officials say the plan would eliminate loopholes that enable some banks to avoid paying tens of millions of dollars in taxes each year. That’s appealing.

But instead of using revenue from the new tax to begin to restore drastic cuts in state aid to public schools, local governments, and essential state services, Mr. Kasich would redistribute that money to banks that don’t need it, in the form of lower tax rates. As Ohio’s recession grinds on, those priorities are askew.

Banks, savings institutions, and related companies now pay Ohio’s corporate franchise tax, assessed at 1.3 percent of net worth. Securities and mortgage brokers, payday lenders, and finance companies pay a different, 0.8 percent tax.

The governor’s proposal would tax all financial institutions at the same rate. It would raise a projected $225 million a year, roughly the same amount of revenue as the taxes it would replace.

The overall tax rate for banks would drop from 1.3 percent to 0.8 percent. The state’s largest dozen or so banks and other financial institutions, in addition to benefiting from that rate cut, would qualify for an additional reduction based on the amount of their “equity capital” in Ohio as measured by gross receipts.

The nonpartisan research and advocacy group Policy Matters Ohio contends that cutting taxes on banks is not likely to stimulate new lending and boost the state economy — the rationale for the tax plan. The group cites financial industry officials who say that many Ohio banks have plenty of cash, but currently claim a lack of demand for loans.

Rather than reduce the tax rate for banks, Policy Matters Ohio credibly argues, the state should tax all financial institutions at the 1.3 percent rate that banks now pay. State lawmakers ought to close loopholes in the tax system without merely returning that money to financial institutions in a different form.

Instead, they should use the money to start to reverse the spending slashes in the current state budget. As an alternative, Policy Matters Ohio proposes applying the tax revenue to helping Ohio home-owners who are threatened with foreclosure — often because of reckless lending behavior by banks and other financial institutions — and to demolishing abandoned and vacant houses.

Broadening the state’s tax base by closing loopholes is good policy, for which Governor Kasich should be commended. But there is no need to deliver a tax rate cut to Ohio financial institutions that are already doing well. As on other state fiscal issues, the goals should be greater fairness and inclusiveness.

Better bank tax

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